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What to do with cash during the present 'yield famine'
Old 04-04-2012, 04:27 PM   #1
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What to do with cash during the present 'yield famine'

This is tongue in cheek, and it's not - Scott Burns is another good resource IMO. I unknowingly followed this advice recently...

The Jumbo CD in Your Garage - Registered Investment Advisor?

Hummer aficionados needn't bother to read it.
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Old 04-04-2012, 05:48 PM   #2
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haha

yes, it does get you thinking, but clearly it's not scientific as it ignores many of the costs of changing cars...such as the potentially much higher purchase price, advertising costs to sell, license plate fees in some states, and the list goes on.

I say move closer to work.
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Old 04-04-2012, 06:34 PM   #3
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From the article:

Quote:
There is even some evidence that a shift is already underway. It was recently reported that in Austin, Texas, the heartland of SUV country, Fiat of Austin sold more tiny Fiat 500s than any other dealership in the country.
Methinks he has Austin confused with the rest of the state...
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Old 04-05-2012, 02:46 PM   #4
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Originally Posted by ziggy29 View Post
From the article:



Methinks he has Austin confused with the rest of the state...
I think he now lives in/near Austin now so he's been "altered."
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Old 04-05-2012, 03:15 PM   #5
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It does point out the effect of low interest rates on cost saving investments though.

If you have a bunch of money sitting in low interest investments, some investments that didn't used to make sense start to. Stuff like a new fuel efficient car, LED light bulbs, switching an electric appliance to natural gas, appliance or furnace replacement, etc.

When the opportunity cost is near zero, more investments make sense.
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Old 04-06-2012, 02:05 PM   #6
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Sorry, not meant to hijack this thread.

The most recent 401k survey referenced by the given report caught my eyes, and my curiosity drove me to take a look at it by myself. There're a lot of interesting tables and graphs in it (2011 Dec. http://www.ebri.org/pdf/briefspdf/EB...%29-Update.pdf), and here are just a few examples and their associated graphs.

  1. Less new participants will hold company stock;
  2. Gradual shift of asset allocation from equity & company stock to balanced funds;
  3. Polarized account balance distribution;
  4. Higher tenures (>10-20+ years) take major composition in higher account balance group (>$100k);

So for the climate of "yield famine" we have now, it seems that an alternative would be to max out pre-tax retirement contribution. However, this might not work either if a participant's income is above 90-100k (as shown by figures 18 & 19).

Just wondering if those CEOs' figures were included in this survey or not.
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Old 04-06-2012, 04:36 PM   #7
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Do these studies including 401K account balances consider 401K's that were rolled over to traditional IRAs? 90% of my personal tax deferred money is in rollover IRAs that started as 401Ks or other pre-401K tax deferred savings plans, so my actual 401K balance is just a meaningless number.
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Old 04-06-2012, 04:50 PM   #8
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Heh, heh, the way to make this car-upgrade thing work is to borrow as much car loan as possible and pay back the loan with your inflation-depreciating dollars down the road. Another alternative to the low interest rates is to buy anything now that you might have use for in the future (carefully balancing shelf-life issues). One example - if you change your own oil and own a house/garage, buy a drum of oil and store it in your garage. Same with any other household staples (from softener salt to charcoal for the grill to TP to 50 lb bags of sugar). None of those things will lose intrinsic value, but your dollars in the bank will. The really good news: You won't owe taxes on the money you "make" this way. By the way, this is not (totally) tongue-in-cheek. To a small extent, I'm doing this though it's not a large part of my "portfolio". Of course, YMMV.
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Old 04-06-2012, 05:03 PM   #9
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I did some quick math and found that it took roughly 225,000 miles for me to spend as much on gas as I did to purchase my 1999 Acura Integra (20-25MPG)... the car cost $21,000 brand new, and over 225K miles I spent about $21,000 on gas.

I like to use that example to show people that they don't really spend as much on gas as they might think... because I drive WAY more than the average and I also had that car for 12 years. The choice of what car you drive, and more specifically how much it costs, is a lot more important than the gas mileage it gets.

Even at $4 a gallon... going for a car that gets 50 MPG instead of 35 MPG would only save approximately $3,428 total over the first 100,000 miles (for most that is about 7 years of driving, so a savings of only about $500 a year)

So if you paid a premium for that higher MPG car you probably lost most of those savings up front.

If you really want to save money in your garage... buy the Yaris ($14,000, 34 MPG) instead of the Prius ($24,000, 50 MPG)


my integra finally died at 238,000 miles last month.... R.I.P
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Old 04-06-2012, 05:09 PM   #10
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that said... yes, ditching the SUV or Hummer (10MPG) for a Prius is actually going to save you A LOT of money if you drive more than 5,000 miles a year. There you'd be talking about tens of thousands in gas savings.
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Old 04-06-2012, 05:35 PM   #11
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Low interest rates have changed my behavior.

For example, we had a $500 fed refund due us, and because our total tax was under $1000, we don't need to make estimated tax payments. Normally I would get the refund, but with low rates, I just put it towards next year's taxes. I figure I'm just losing a few dollars in interest, and avoiding the hassle of routing numbers, etc. Maybe I went too far, but I like to keep things simple.

In the same vein, I used to keep our checking acct balance super low, but since the mm rate isn't much higher, I keep a bigger balance and replenish less.

Finally, the are problems with Amazon and Shopsafe numbers, so I periodically just buy myself a big Amazon gift card, and replenish that now and then.
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Old 04-07-2012, 12:42 AM   #12
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Originally Posted by Koolau View Post
Heh, heh, the way to make this car-upgrade thing work is to borrow as much car loan as possible and pay back the loan with your inflation-depreciating dollars down the road.
The heck with the garage-- we're doing that with a 30-year mortgage on the whole house.

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For example, we had a $500 fed refund due us, and because our total tax was under $1000, we don't need to make estimated tax payments. Normally I would get the refund, but with low rates, I just put it towards next year's taxes. I figure I'm just losing a few dollars in interest, and avoiding the hassle of routing numbers, etc. Maybe I went too far, but I like to keep things simple.
Kate Kashman (a military spouse) posted yesterday on just this topic:
http://paycheck-chronicles.military....-this-mistake/
Quote:
In 2009, I did not file our familyís income tax return until late October due to a combat zone extension. Due to the the same combat zone service and the subsequent qualification for the Earned Income Credit, we were to receive a large refund. Since we were filing again in January for 2010, and we expected to owe money, I selected the option where you apply one yearís tax refund to the following yearís tax payments.
DO. NOT. DO. THIS.
There are many reasons that I say this. First, by making this choice, I lost the ability to deal with issues within an individual tax year. When the IRS started messing with my 2009 return, I couldnít file my 2010 return on time. And, since it turned out we got a refund in 2010 also, it just meant that the IRS kept my money longer. And there is no good reason to give money to the IRS if it isnít required.
Just to make it more interesting she was dealing this while stationed in Italy, with her spouse on deployment again (and her with just a power of attorney), with no home Internet service, and with spotty overseas fax service.
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Old 04-07-2012, 07:13 AM   #13
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Yesterday I was in my local bank branch taking part of my 2012 RMD from an IRA. They were "celebrating" a GREAT new rate on a CD they were introducing. Banners and cookies and coffee. The rate? 1.6% for 5 years. How can you get excited over that?
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Old 04-07-2012, 07:35 AM   #14
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Quote:
Originally Posted by Rustward View Post
Do these studies including 401K account balances consider 401K's that were rolled over to traditional IRAs?
Good point. I'm not sure if/how the survey handled this kind of situation. Nevertheless, at certain point there was a participant's 401k balance in their system. When the sample size is large enough, the final tabulation should be representative enough.

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Originally Posted by Koolau View Post
Another alternative to the low interest rates is to buy anything now that you might have use for in the future (carefully balancing shelf-life issues).
Quote:
Originally Posted by Koolau View Post
None of those things will lose intrinsic value, but your dollars in the bank will. The really good news: You won't owe taxes on the money you "make" this way.
Same here. For me, some spare parts for my garden tractor and essential tools for firewood are on my list. The liberty bell stamp will be next because USPS is now petitioning for another rate hike. This most likely will beat any CD rate on Bankrate.com now.

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Originally Posted by TromboneAl View Post
Normally I would get the refund, but with low rates, I just put it towards next year's taxes. I figure I'm just losing a few dollars in interest, and avoiding the hassle of routing numbers, etc. Maybe I went too far, but I like to keep things simple.
If it were for me, I wouldn't give them my money interest free in advance because they will never do that for me.
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Old 04-07-2012, 08:15 AM   #15
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Quote:
Originally Posted by JOHNNIE36
Yesterday I was in my local bank branch taking part of my 2012 RMD from an IRA. They were "celebrating" a GREAT new rate on a CD they were introducing. Banners and cookies and coffee. The rate? 1.6% for 5 years. How can you get excited over that?
My guess THEY were celebrating and getting excited over locking down clients cash for 1.6% and recycling it back out to needy customers at 7% plus or more.
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Old 04-07-2012, 02:25 PM   #16
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Quote:
Originally Posted by JOHNNIE36 View Post
Yesterday I was in my local bank branch taking part of my 2012 RMD from an IRA. They were "celebrating" a GREAT new rate on a CD they were introducing. Banners and cookies and coffee. The rate? 1.6% for 5 years. How can you get excited over that?
Depends-- what kind of cookies were they serving?
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